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Why Skills-Based Hiring is Shaping Employment

Recruitment Blog

March 7, 2024

HomeRecruitment BlogWhy Skills-Based Hiring is Shaping Employment
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In recent years, the corporate world has witnessed a significant shift towards skills-based hiring, a trend fuelled by the evolving demands of the workforce and the stark projections of labour shortages. With Korn Ferry estimating a deficit of 85.2 million workers by 2030, businesses are urgently reevaluating their hiring strategies. Skills-based hiring has emerged as a potent solution to this projected crisis, promising to bridge the gap between talent demand and supply.

A Global Shift Towards Skills-Based Hiring

Statistics reveal a compelling narrative of adoption and adaptation. In 2023, 73% of companies globally have integrated skills-based hiring practices, with 27% adopting this approach in just the last 12 months. This represents a 17% increase from the previous year, signaling a rapid embrace of this methodology. The investment in skills-based hiring is also on the rise, with 60% of companies planning to increase their spending—a significant leap from 39% in 2022. This shift is a response to the acute challenge employers face: a staggering 77% report difficulties in finding the skilled workforce they require, which is a dramatic increase from 35% a decade ago.

skills based hiring 2022 vs 2023 comparison chart for Canada, US, UK, Latin America and Australia

Expanding the Talent Pool

Adopting a skills-first approach has the potential to revolutionise the recruitment landscape. According to LinkedIn, this strategy can increase the talent pool up to tenfold. With 70% of U.S. jobs requiring a bachelor’s degree, yet only 37% of the workforce holding one—the traditional reliance on academic qualifications is increasingly untenable. Reflecting this evolving attitude, job postings on LinkedIn demanding degrees have dropped by 5% over the past year.

Accelerated Hiring and Enhanced Retention

The benefits of skills-based hiring extend beyond merely widening the talent pool. It has proven to be a catalyst for more efficient hiring processes, with 91% of companies witnessing a reduction in time-to-hire. Furthermore, McKinsey’s report underscores the positive impact on retention rates, noting that hiring for skills is significantly more predictive of job performance than education or work experience. Remarkably, employees without college degrees tend to stay in their roles 34% longer than their degreed counterparts, highlighting the retention advantage of skills-based hiring.

The Statistics Speak Volumes:

Embracing a skills-first approach is not just beneficial but essential for businesses aiming to thrive in the competitive landscape of the future.

  • Global Labor Deficit: Projected deficit of 85.2 million workers by 2030 Korn Ferry.
  • Adoption Rates: 73% of global companies use skills-based hiring in 2023, with 27% adopting it in the last 12 months. Test Gorilla
  • Yearly Increase: 17% more employers utilized skills-based hiring in 2023 than in 2022.Test Gorilla
  • Investment Growth: Companies planning to increase their spend on skills-based hiring rose from 39% in 2022 to 60% in 2023. Test Gorilla
  • Skill Shortage: 77% of employers struggle to find skilled workers in 2023, up from 35% a decade ago Manpower
  • Talent Pool Expansion: A skills-first approach could increase the talent pool tenfold LinkedIn
  • Educational Requirements: 70% of U.S. jobs demand a bachelor’s degree; only 37% of the workforce possesses one. Forbes
  • Decrease in Degree Demand: Recruiters are 5x more likely to search by skills than by degrees. Insights LinkedIn
  • Time to Hire: 91% of companies saw a reduction in time-to-hire with skills-based hiring, with 40% reporting a decrease of more than 25% TestGorilla.
  • Retention Rates: Work experience is more predictive of job performance; employees without degrees tend to stay in their jobs 34% longer McKinsey. Hiring based on skills can be a huge advantage.

The rising tide of skills-based hiring is not just a passing trend but a fundamental shift in the recruitment. As companies grapple with the challenges of a rapidly changing labour market, skills-based hiring offers a way forward that is more inclusive, efficient, and aligned with the needs of the modern workforce.

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Can you suggest some tool recommendations to help with this strategy?

Absolutely, there are several tools available that can significantly aid in the implementation of a skills-based hiring strategy, especially when it comes to assessing hard skills as well as other competencies. For evaluating hard skills, platforms like HackerRank offer a robust solution. HackerRank and similar software provide a comprehensive suite of challenges and assessments that can test candidates on a wide range of technical skills, from coding to problem-solving within specific programming languages. These platforms are particularly useful for roles in software development, data science, and other technical fields where specific skill verification is crucial.

However, when it comes to assessing broader competencies or soft skills, I highly recommend exploring the capabilities of ChatGPT and Gemini. These tools can be instrumental in creating custom assessments that evaluate a candidate’s ability to perform specific job-related tasks or demonstrate certain behaviors. By using ChatGPT, for example, you can simulate real-life work scenarios that a candidate might face and assess their responses, providing a deeper insight into their problem-solving abilities, communication skills, and overall fit for the role.

Gemini, on the other hand, can offer a more tailored assessment experience, allowing you to design tests that are highly relevant to the job’s requirements. This could include situational judgement tests, personality assessments, or even specific task-based challenges. The flexibility of such tools means you can assess a wide array of skills beyond the technical, including leadership qualities, teamwork, adaptability, and more.

How are organisations evaluating the success of their skills-based hiring strategy?

The impact of skills-based hiring outside of job placements can be measured through the success and progression of hires within the company. Monitoring retention rates and performance data, HR teams can ascertain whether the skills-based approach is yielding positive outcomes in terms of employee engagement, productivity, and long-term growth. These metrics offer tangible evidence of the strategy’s effectiveness, enabling stakeholders to see the value of investing in a hiring approach that prioritises skills and potential over traditional credentials.

If certain skill areas are identified where candidates do not meet expectations or require additional support, the approach can be fine-tuned. This adaptability means that job descriptions and hiring criteria are not static but evolve in line with organisational needs and industry trends.

Do the panellists see skills-based hiring being a suitable strategy for graduate recruitment in Professional Services Firms?

Skills-based hiring enables companies to look beyond the conventional boundaries of recruitment, in the context of graduate recruitment, consider graduates from a broader spectrum of disciplines and educational institutions, rather than focusing solely on those from traditionally targeted degree programmes.

That said, the application of skills-based hiring in graduate recruitment poses certain challenges. Given that graduates typically have limited professional experience, assessing their skills through past employment can be difficult. To address this, companies might need to develop  robust assessment methods. These could include case studies that simulate real-world problems, interactive simulations that test practical skills in a controlled environment, or structured internships that provide a platform for graduates to demonstrate their capabilities in a professional setting.

Within Professional Services, traditional academic qualifications may still carry considerable weight for certain roles. Adopting a hybrid approach that marries skills assessment with an acknowledgment of academic achievements could offer the most balanced and effective strategy for graduate recruitment in these sectors. This approach ensures that while skills and potential play a pivotal role in the recruitment process, the value of academic achievement and discipline-specific knowledge is not overlooked.

How can companies handle internal pushback & resistance?

First and foremost, clear and transparent communication is imperative. It’s vital to explain the rationale behind the change, highlighting the benefits not only for the organisation but for individual team members too. This involves presenting data and evidence that underscore the shift, such as case studies or benchmarks from other organisations that have triumphantly implemented similar changes.

Secondly, engaging stakeholders is crucial. Identify key stakeholders and champions within the organisation who can advocate for the change. These individuals can aid in facilitating discussions, addressing concerns, and offering a relatable perspective on how the change aligns with the company’s goals and ethos.

Continuous education and training are pivotal. Resistance often stems from a fear of the unknown or discomfort with new processes. Providing training sessions, workshops, and resources can help demystify the change and bolster confidence within the team. Additionally, establishing a feedback loop, allowing employees to voice their concerns and suggestions, not only aids in addressing any issues but also makes employees feel listened to and valued, which can significantly mitigate resistance.

Lastly, it’s important to demonstrate quick wins and celebrate successes. Illustrating tangible benefits from the early stages can help build momentum and foster buy-in from sceptics. Acknowledge and reward departments or individuals who embrace the change, as this reinforces positive behaviour and outcomes.

Can you give examples of skills-based hiring practices?

By adopting skills-based hiring practices, organisations can ensure they are selecting candidates who possess the actual skills needed for the job, leading to better job performance and satisfaction, and ultimately, contributing to the overall success of the organisation. Here are some examples that will help…

Implementing skills assessment tests is a pivotal practice in skills-based hiring. These tests can range from practical tasks, coding exercises for technical roles, to written assignments for content creators. The objective is to assess how well a candidate can perform tasks they would encounter in the role. 

Job skills testing goes a step further by assessing both hard and soft skills relevant to the position. For instance, a customer service role might involve tests for empathy and communication, alongside knowledge of customer relationship management software. This approach provides a holistic view of a candidate’s capabilities.

Creating a structured interview process ensures that all candidates are evaluated equally, based on the specific skills required for the job. This method involves standardising questions and criteria for assessment across all interviews, reducing bias and improving the fairness and consistency of candidate evaluations.

Focusing job descriptions on the essential skills and competencies needed for success in the role is another key practice. This approach moves away from listing unnecessary qualifications, like specific degrees or years of experience, and instead highlights the practical skills and abilities candidates need to perform effectively in the position.

and finally, incorporating behavioural questions into the interview process helps gauge a candidate’s problem-solving abilities, communication skills, and other relevant competencies. These questions ask candidates to describe past experiences where they demonstrated particular skills, providing insight into how they might handle similar situations in the future.


How to start with skills-based hiring when you are filling for large scale vacancies?

Starting with skills-based hiring, especially when dealing with large-scale vacancies, requires a structured approach to ensure success and scalability. Here’s a few pointers:

1. Pilot the Approach with One Department
Begin by selecting a single department as your test case for skills-based hiring. This allows you to refine your processes on a smaller scale before rolling them out company-wide. Choose a department with a high volume of vacancies or one that traditionally faces challenges in finding suitable candidates using conventional hiring methods. Monitor the success of this pilot closely, gathering data on the efficiency of the process, the quality of hires, and the overall impact on team performance.

2. Educate and Get Buy-in from Stakeholders
For skills-based hiring to be effective, it’s crucial to have the support of key stakeholders across the organisation. This includes senior management, department heads, HR, and the recruitment team. Conduct workshops or presentations to educate them on the benefits of skills-based hiring, such as improved diversity, better job performance, and reduced turnover. Highlight successful case studies from other organisations or from your pilot department to demonstrate its effectiveness. Gaining buy-in is essential for securing the resources needed and ensuring cooperation throughout the recruitment process.

3. Redefine Job Descriptions
Revise your job descriptions to focus on the skills and competencies required for each role, rather than on educational background or years of experience. Identify the core skills that are crucial for success in the role and describe them in a way that is clear and measurable. This may involve working closely with hiring managers and current employees to understand the day-to-day demands of the role and the attributes of high performers. A skills-focused job description will attract a broader range of candidates and ensure that you are assessing applicants on criteria that truly matter for the job.

4. Adopt Skills Assessment Tools
Invest in or develop skills assessment tools that can accurately measure a candidate’s abilities in relation to the job requirements. These tools can range from practical tasks and simulations to software platforms like coding challenges for technical roles or sales pitch simulations for sales positions. The goal is to create an objective measure of a candidate’s ability to perform the job functions, regardless of their background. A couple have been suggested from Johnny earlier.

The key is to start small with a pilot, gain support from stakeholders, focus on skills in job descriptions, and use objective assessment tools to measure candidate abilities. 

How can we ensure fairness and reduce bias in skills-based hiring?

Ensuring fairness and reducing bias in skills-based hiring isn’t just about ticking boxes or following a procedure; it’s about fundamentally embracing and nurturing a culture of equity and inclusivity at the heart of your recruitment processes. Start by standardising your assessments, implement blind screening, set up a diverse interview panel, conduct structured interviews, and continuously monitoring outcomes…

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